Active income is income generated from your continuous action, meaning that there is income as long as you work. Stop working and there is no income. Passive income is continuous income generated from one time action. That means (in theory) that there is income without your active work. Sometimes passive income is called residual income.

Term residual income is ambiguous because its main meaning is "an income reduced by all debts payments". It is used by banks to calculate how much money do you have to payout future debts. As you can see, this meaning of residual income has nothing to do with its other meaning (passive income). To avoid confusion we will use the term passive income.

At the first look, passive income sounds great. You are sitting and dollars are flowing into your pockets. Unfortunately, you will always have to do something for your income. The question is how much time you will spend to achieve that. Let's look at the following example. You own one apartment and you rent it. You might say that renting it is a perfect example of a passive income without work on your side. However this is not entirely true. What if your tenants decide to go to Alaska? You will have to find another one. Therefore you should put some advertising. Also, you should talk with the potential tenants. What if your apartment needs some painting and fixing before renting? As you see, you will always work for your money but that work might not require 50 hours per week.

The benefit of passive income is in fact that after initial effort you will have to invest a little time occasionally. That means that you could try several passive income operations. Some of them may bring you a great success. Also, it is possible to run passive income operation, while working on your current job. On the other hand, you cannot work on two full time jobs at the same time. That means that you can try with only a limited number of full time jobs in your life time in order to achieve a financial success. Therefore, you can try much more passive income operations than full time jobs. Some of them might be a big success.

At the end, it is important to ask yourself "What will I do when I create a solid passive income?" Why is that answer important? Your motive to create a passive income might be to start doing something else. Then a logical questions arises "What stops me from doing that right now?". After all we all seek happiness, and work is one third of our lives (or one half of our wakeful life). Why not doing for work things we like the most?

Basic types of passive income

1. Buy and rent a property

The idea is to buy a real estate and rent it. If you pay it with cash then afterwards you will only have to maintain the property and collect the money from renting. Apart from the rent, the profit is generated through the appreciation of the property. Be aware that it is also possible for real estate prices to go down. In that case you might have a loss. Also, it is possible to use a mortgage. Then you have to balance a rent and a monthly mortgage payment. In ideal situation you might have a monthly positive income stream.

2. Vending machine

The idea behind this kind of income is to install a vending machine somewhere. This is not entirely passive, because you will have to "feed" your machines with stuff, but you will have to do this only occasionally (for example once a month). Of course, you will have to make a deal with the property owner where you install candy machines.

3. Create a web content and sell ads

If you have something to write about, and that appears to be popular, you could put it on the Internet and earn revenue through the ads. Topics could be cats, sports, movies, education, science, leisure ....

4. Sell on eBay

Find a reliable source of some cheap goods and sell it through the eBay. Your source could even do the delivery to your customers.

5. Write an ebook

Write an ebook about something in your area of expertise and sell it.

6. Write a book

Remember Harry Potter? J.K.Rowling was once a single mother living on welfare, and now she has one billion. It is unlikely that you can earn one billion, but the idea is to write a good book once, and earn a steady cash inflow afterwards.

7. Create a software product

This is quite similar to writing a book. Write a good software that people wants to use, and here is the steady income. You should probably maintain that software, but that is an excellent opportunity for selling even more of new versions of your software. That probably means that you should work, but you could also hire someone to do it for you.

8. Dividends and capital gains

Invest in a good company that pays it's dividends. If you invest 100$ in a stock today, and after a year its worth is 110$ then you have earned 10$ doing nothing. That is a capital gain and it is completely passive income. Warren Buffet has been doing this for more than 50 years.

9. Interest income

You could put your money into savings account or you could buy some CDs and earn an interest. For more options visit your bank. Visit other banks as well.

10. Royalties & patents, inventions, songs, photos

This is similar to the book writing. Being a good inventor, singer or photographer means that you could earn a little whenever someone use your inventions, songs or photos. Let's mention some examples: Edison, Madonna, Pitt.

11. Delegate your work to others and pay them less than you are payed.

Imagine that you work for 2000$ per month. If you find someone to do your job for 1500$, then you will earn 500$ doing nothing. Of course, your employer might dislike this approach so be aware.

12. Create a product and sell it

A product could be anything from candies to the space shuttle. For the beginning I propose you to stay closer to the candies. It is not necessary to manage production by yourself. There is a lot of companies that could do that for you.

13. Create a business and employ a manager

Of course that would require time. Creating a business that is profitable will take several years. But after that you are in the zone of possible passive income. Employ a manager to replace your role and here you are with a passive income.